Chancellor Jeremy Hunt will step into the City’s spotlight next week, with what is likely to be the last Budget before a general election expected later this year.
With the UK in technical recession, the Square Mile is looking to Westminster for measures that will unlock economic potential in Wednesday’s announcements.
And there are hopes that Hunt will take steps to help boost the appeal of the stock exchange, with London losing out to New York for big-name listings.
One way of helping energise the valuations of companies listed in the UK – and giving savers a helping hand – is from tax breaks to encourage individual investors to back the stock market. City experts think Hunt is considering tax breaks for individual saving accounts (ISAs) specifically designed to funnel money into shares, to help deepen the pool of capital available in London, which could in turn boost the valuations of listed companies.
But there are warnings that such a move toward a so-called “British ISA” could prove counterproductive. Tom Selby, director of public policy at stockbroker AJ Bell, said: “There is a danger that adding a new ISA confuses ordinary savers and leaves people unsure which ISA is right for them, leading to inertia”, adding:
“Given most investors have a natural bias towards UK companies and funds anyway, the most straightforward way to boost retail investment in UK companies would simply be to raise the £20,000 ISA allowance, which has remained unchanged since 2017.”
Retail investors and City professionals alike are also looking out for moves to sell part of the government’s remaining 35% stake in NatWest. Public ownership of the lender dates back to the 2008 financial crisis and the rescue of its parent, Royal Bank of Scotland.
There has been of a potential sale in the summer. But the price of NatWest’s shares looks low according to City experts, and Hunt has said he wants to get “full value for money”.
Richard Hunter, head of markets at Interactive Investors, points out that NatWest’s valuation “has tended to be dogged by the general outlook for the UK economy,” leaving the timing of any sale potentially linked to a wider improvement.
Moves to get the UK out of recession are likely to shape the political debate into the election. But commentators point out that the proximity of the vote is, in itself, likely to affect the kind of action taken.
Barret Kupelian, chief economist at PwC UK, one of the so-called “big four” accountancy firms called for “a balance to be found” in an election year.
“The levers that could provide an immediate boost to the UK economy – a closer relationship with our largest trading partner the European Union, or higher levels of immigration – are politically unattractive.
“So the best the Chancellor can do in the short-term, is to provide certainty to businesses on the future policymaking trajectory of the UK economy. Having a joined up Industrial Strategy which considers both the manufacturing as well the services and primary sectors of the UK economy in a rapidly changing world should be part of that policy.”
Moves to help home buyers are also expected, with housing set to become a key battleground in the election. Rumours that Hunt could launch plans for 99% mortgages to help open access to the housing ladder.
Jennie Daly, chief executive of Taylor Wimpey, said there were still problems with “affordability” in the market, adding: “Anything the chancellor can do to support first time buyers is healthy for the whole housing market, not just new homes.”
Attention is also on tax, with the looming election piling pressure on for feel-good giveaways and Hunt has made it clear he intends to ensure people are left with more of what they earn.
But reports say Hunt is less likely to cut income tax with the economy in recession, meaning plans to shave the base rate to 18% from 20%, known as the 2p cut, have been shelved.
Nonetheless, analysis from Dutch Bank ING finds that the chancellor could have enough leeway after all. It puts the amount of “fiscal headroom” at around £18 billion.
If we’re right on the amount of headroom, then the chancellor could perhaps get away with a permanent 2p cut, though that wouldn’t leave him much left over
“If we’re right on the amount of headroom, then the chancellor could perhaps get away with a permanent 2p cut, though that wouldn’t leave him much left over,” said ING’s James Smith, developed market economist.
Hunt is also said to be considering closing a loophole for so-called “non-dom” taxpayers, who split their time between the UK and overseas, to pay less on earnings made abroad, a plan first suggested by the Labour Party.
